China to end tax breaks for foreign companies

Chinese companies ranging from manufacturers to life insurers loudly criticize tax breaks for their foreign competitors, especially after Beijing's WTO entry required it to let more of them into its domestic market.

"We want equal tax rates with foreign companies so that domestic enterprises in our fields can better compete with overseas counterparts," said a spokesman for the China Light Industry Federation who refused to give his name. The group represents companies in manufacturing, publishing and other industries.

China attracted some $60 billion in foreign investment last year, raising the total over the past two decades to $659 billion, according to the government.

While many foreign companies will see taxes rise, the new code could be a boon to some.

Those that have no operations of their own in China and rely on local partners for manufacturing will see their partners' taxes fall, said Mary K. Thomas, director of the international tax department for the Dallas consulting firm Weaver and Tidwell LLP.

"I'm alerting those folks that when their contracts are up for renewal, they ought to keep in mind the reduction in the cost of doing business," Thomas said. "They should get a piece of that decrease."

Zhao said some of his clients are speeding up planned investments to lock in tax breaks before any legal change takes effect, though none has launched a project just to beat the deadline.

"If it's already in the pipeline, they certainly would like to accelerate wherever possible," he said.

A key issue will be whether Beijing can enforce the new standard.

"I doubt that it will travel so fast, especially to the remote western region," said Zhao. "So one can expect that there still will be arrangements made by local authorities in order to attract or retain investors."

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